Sunday, March 8, 2015

The future of Greece and Spain

Joseph Stiglitz, Paul Krugman, Charles Wyplosz (see, for example, Wyplosz' excellent article "Messing up the next Greek debt relief could endanger the Eurozone"), Paul de Grauwe and Yanis Varoufakis are among the well known, thoughtful economists who have criticized the way European policymakers and the IMF have handled Greece's debt problems (and that of other European countries). One of their criticisms is that Greece's debt should have been reduced in 2010 rather than increased, as was done when the first EU-IMF 'rescue' loan package for Greece was put in place. Rather than helping the Greek people, these new loans helped European private banks to survive.

Paulo Nogueira Batista, executice director of the IMF

Their criticism was shared by Brazilian economist Paulo Nogueira Batista, executive director of the IMF, who said in a prepared statement to the May 9, 2010 IMF board meeting discussing an IMF loan to Greece: "The risks of the [Greek] program are immense…As it stands, the program
risks substituting private for official financing. In other and
starker words, it may be seen not as a rescue of Greece, which
will have to undergo a wrenching adjustment, but as a bailout of
Greece’s private debt holders, mainly European financial
institutions."

Recently, in a television interview by Thanos Dimadis for Alpha TV, published on March 4, 2015, Paulo Nogueira Batistsa added:

"I was critical of the way the Greek issue was handled by
the Troika including the IMF. One of the major problems of the IMF program was
that they put too much of a burden on Greece and not enough of a burden on
Greece’s creditors. The first program of 2010 was presented as a bailout for
Greece, but in reality was more a bailout of the private creditors of Greece.
Greece received enormous amounts of money but the money was basically used to
allow the exit of, for example, French and German banks, without any
contribution to the restructuring of the Greek economy.

In my opinion, the debt is way too large and a solution to
the Greek crisis should include a restructuring of the debt of Greece with its
official creditors. If you look at the situation in Greece, it’s difficult to
see how Greece will extricate itself from this serious economic and social
crisis without some debt restructuring. The largest part of Greece’s debt is
now with its European partners.

The Troika or the institutions as they are now called,
should respect the sovereignty of the Greek nation. The IMF and the European
partners cannot behave as though the elections did not happen. It would be wrong
to say that Greece should stick to all the commitments made by the previous
government. This has to be
reviewed. The IMF should consider the fact that the targets for the fiscal
adjustment and the targets for the primary surplus need to be revised downward
and substantially."

The history of public debt in Greece and Spain

The Greek debt saga still goes on. Recently, Spanish economist Vicenç Navarrro put it in a broad historical perspective, in an article published by Counterpunch on January 9-11, 2015 ("What is going on in Spain?"). Navarro is a professor of political sciences at the Pompeu Fabra University in
Spain and a professor of public policy at the Johns Hopkins University
in the USA, who has become well known in Spain being one of the authors of a best-selling book presenting an alternative to the current neoliberal economic policies. He has also gained prominence being one of the two authors of a wide-ranging plan recently adopted by the new political party Podemos to change course in Spain: Un Proyecto Económico para la Gente (An Economic Project for the People).

Navarro has written extensively (see, for instance, “Capital-Labor: The Unspoken Causes of the
Crises,” www.vnavarro.org,
Economic Section and "Crisis and Class Struggle in the Eurozone") about the historical reasons why Spain,
Portugal, Greece and Ireland are in trouble. In the January 2015 Counterpunch article he summarised his view as follows:

"All these countries,
referred to rather unkindly in the Anglo-Saxon economic literature as
PIGS (Portugal, Ireland, Greece, and Spain), have had ultra-right-wing
dictatorships (fascist or fascistoid), except Ireland, governed by a
very conservative party close to the Church. These dictatorships were
the result of military coups (in the case of Spain, supported by Hitler
and Mussolini in 1936) against democratically elected governments that
had initiated meaningful reforms affecting the privilege of the
oligarchy, i.e., the agricultural, financial, and (in the case of
Catalonia and Basque Country in Spain) industrial bourgeoisie, in
addition to the Catholic Church and the Army. The Spanish fascist coup
established one of the most brutal repressions that has ever taken place
in Western Europe during the 20th century. (...) Franco’s dictatorship was a class dictatorship against the
working population. That dictatorship was responsible for the enormous
economic and cultural underdevelopment in Spain. When the military coup
took place in 1936, Spain’s Gross National Product (GNP) per capita was
similar to Italy’s. In 1978, when the dictatorship ended and the
democracy was established, Spain’s GNP per capita was only 62% of
Italy’s. That was the economic cost of having a fascist dictatorship."

According to Navarro one of the reasons Greece, Spain, Portugal and Ireland have huge public debts is that the income of their states is much less than that of other Eurozone countries. This, again, has its historical roots, as Navarro explained in a recent interview with him held by students of the Pompeu Fabra University:

It is positive that we have thoughtful economists. But it would be even better if some of their good ideas are put into practice. In Greece the new government is trying to do that. Hopefully, the Greeks will receive support in the near future from a new government that Spain may get when Podemos wins the elections. According to polls the chances are high that Podemos would win if
elections were held today.

Navarro ended his January 2015 Counterpunch article looking at the future. He said:

"The success of Podemos has become a major threat to the
Spanish (and to the European) establishment. Today, the Spanish
financial, economic, political, and media establishments are on the
defensive and in panic, having passed laws that strengthen the
repression. The heads of the major banks in Spain are particularly
uneasy. Mr. Botín, president of the major bank Santander, indicated four
days before he died (a few weeks ago) that he was extremely worried,
indicating that Podemos and Catalonia were very threatening to Spain.
He, of course, meant his Spain. And he was right. The future is quite
open. As Gramsci once indicated, it is the end of a period without a
clear view of what the next one will be. Europe, Spain, and Catalonia
are ending an era. This is clear. What still is unclear is what will
come next. We will see."

About Me

As a kid I liked numbers and the sound of strings. I considered studying engineering but chose social sciences because of my interest in people. I combine a theoretical interest with a practical, social approach which brought me to the sphere of policy research. I am interested in reducing the disparity between poor and rich, between the powerful and the less powerful.
In 1973 and 1982 I lived in Latin America. In the mid-1980s, I was able to create an international forum to discuss the functioning of the international monetary system and the debt crisis, the Forum on Debt and Development (FONDAD). I established it with the view that the debt crisis of the 1980s was a symptom of a malfunctioning, flawed global monetary and financial system.
I was one of the driving forces behind the creation of the European Network on Debt and Development that was established at the end of the 1980s to help put pressure on European policymakers.
In 1990, before the beginning of the Gulf War, I cofounded the Golfgroep, a discussion group about international politics comprising journalists, scientists, politicians and activists that meets regularly.
The website of FONDAD is www.fondad.org